Information Uncertainty and the Post–Earnings Announcement Drift in Europe
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Citations
How Do Credit Markets React to Earnings Releases: Empirical Analysis and Implications for Investors
References
Risk, Return, and Equilibrium: Empirical Tests
On Persistence in Mutual Fund Performance
An empirical evaluation of accounting income numbers
The Persistence of Mutual Fund Performance
A Simple Model of Capital Market Equilibrium with Incomplete Information
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Frequently Asked Questions (7)
Q2. What is the main constraint that the authors face in terms of data coverage?
the authors use widely availablemarket data to compute their indicators of market surprise, so that the main constraint that the authors face in terms of data coverage is the availability of interim and fiscal year-end report dates.
Q3. What is the strongest evidence of abnormal behaviour?
In other words, it is in within those stocks that suffer form larger degrees of information uncertainty and/or higher limits to arbitrage that the authors find the strongest evidence of abnormal behaviour.
Q4. Why do Bekaert et al (2010) show that idiosyncra?
Bekaert et al (2010) show, for a large sample of developed countries, that aggregate idiosyncratic volatility is well described by a stationary, mean reverting process with occasional shifts to a higher mean, higher variance regime.
Q5. What are the main reasons for the post-earnings announcement drift?
For instance, Liu and Thomas (2000) show that a significant portion of the market reaction around earnings announcement is due to nonearnings related information.
Q6. how do the authors determine whether the abnormal volume strategy continues to generate a significant return?
each month the authors run:i t i tt i ttt i t Return AbsoluteReturn AbsoluteVolume Abnormal εββα +⋅+⋅+= −−++ (8)The residuals of these regressions are then used in monthly strategies, to assess whether, controlling for absolute return, the abnormal volume strategy continues to generate a significant return.
Q7. What is the effect of controlling for stock illiquidity?
To the extent that market capitalisation does not perfectly control for stock illiquidity, it could be that the significant quintile spread return earned by the earnings surprise strategy within the largest capitalisation names disappears once stock illiquidity is taken into account explicitly.